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Machinery Stocks to Watch for Earnings on Oct 19: DOV, GGG

The performance of machinery stocks last year was nothing worth writing home about with adverse currency movements, weakening economic conditions, particularly in China, and multi-year low commodity prices plaguing the industry. The Machinery industry, which is broadly grouped under the Industrial Products sector (one of the 16 broad Zacks sectors), suffered a 21% decline in earnings in first-quarter 2016 and a 1% dip in the second quarter.

For the third quarter, a mere 4.3% of the companies in the industrial products sector (one of the 16 broad Zacks sectors) have reported their numbers so far putting up a 16% growth in earnings. Our projected figures for the quarter for the sector reveal 3.4% growth in earnings this quarter. The industrial products sector is one of the eight sectors in our coverage that is anticipated to log positive growth in the quarter.

Looking at the bigger picture of yet-to-report 464 companies, total S&P 500 earnings are expected to be down 2.2% while revenues will rise 1.5%. All indications at the moment point to this quarter being on track to be the 6th quarter in row of earnings declines.

As per the Federal Reserve, industrial output edged up 0.1% in September after a 0.5% dip in August. The improvement was driven by a 0.2% rise in manufacturing output, which in turn was boosted by the production of goods such as textiles and plastics. In the third quarter, industrial production rose at an annual rate of 1.8% - the first quarterly increase since third-quarter 2015. Manufacturing output moved up at an annual rate of 0.9% in the third quarter.

The industrial sector has been affected by a strong dollar and an oil price slump. Further, efforts to reduce an inventory overhang led to fewer orders being placed with factories. However, with the dollar's rally fading and oil prices stabilizing, the worst of the industrial downturn seems to be over.

It will be interesting to see how some of the machinery stocks fare in when they release their numbers on Oct 19. Apart from beats and misses, focus will also be on their outlook.

World-wide, diversified manufacturer of industrial products, Dover Corporation (DOV - Free Report) is set to release third-quarter 2016 results before the market opens. Dover reported a year-over-year decrease in both earnings and sales in the second quarter. Dover has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average earnings beat of 1.21%.

Our proven model does not conclusively show that Dover is likely to beat on earnings this quarter. The company currently carries a Zacks Rank #5 (Strong Sell) and a 0.00% ESP. The right combination for a likely earnings beat is a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Lower bookings in the second quarter, weaker capital spending across several industrial end markets, continued weakness in longer cycle oil & gas exposed markets remain the primary concerns. Further, the persistent headwinds in its retail refrigeration business related to production inefficiencies remain a threat for the company. (Read more: Will Dover Corp Disappoint This Earnings Season?).

Graco Inc. (GGG - Free Report) , which manufactures, and markets equipment to pump, meter, mix, and dispense various fluids and coatings worldwide,is also slated to release its third-quarter results, after the market closes. Graco reported a 15% decline in its top line in the second quarter. In the four trailing quarters, the company reported below-expected results in two while surpassing estimates in the rest with an average positive earnings surprise of 1.14%.

The combination of Graco’s Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% makes an earnings beat unlikely this quarter.

The company predicts difficult operating conditions in the Process segment in second-half of the year. It also anticipates industrial business to remain weak in the Americas.

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